Two Stanford Professors Have A Fascinating Theory Of Why Businesses Succeed

The construction and home improvement giant had just announced it
would shutter seven big-box outlets in China — the last of the 12
stores it had acquired six years earlier. The company would take
an after-tax charge of $160 million and 850 people would lose
their jobs.

Yet as Home Depot was closing up shop in China,
another home furnishing titan was thriving there. In 2012,
Swedish company IKEA announced that sales at its 11 mainland
China locations had jumped 21% from the previous year. And last
week, IKEA posted record full-year profits for 2013 and said some
of its strongest growth occurred in China.

According to the
management professors, the seemingly baffling occurrence boils
down to a simple business principle: knowing when to replicate
best practices, versus when to adapt them to different cultures
and situations.

They refer to this idea as Buddhism vs.
Catholicism. To be clear,
Sutton and Rao's argument is not a spiritual one. They simply
call upon the two religions to illustrate a cultural
dichotomy.

All entrepreneurs starting businesses are forced to make
early-stage choices and consider how their venture could scale.
What Sutton and Rao contest is that everyone has a simple
decision: "Is it more like Catholicism, where the aim is to
replicate preordained design beliefs and practices? Or is it more
like Buddhism, where an underlying mindset
guides why people do certain things — but the
specifics of what they do can vary wildly from
person to person and place to place?"

Catholicism represents the strict and formulaic approach: find a
model that works, and replicate it. Buddhism is the creative and
customizable: create an idea and then tailor it to fit different
cultures and locations.

The trick is that this choice usually isn't an all-or-nothing
one. And that was where Home Depot went fatally wrong in China.
The company arrived there in 2006 armed with its popular
slogan: "You can do it. We can help." But
cultural studies have shown that most people in China don't want
to do it themselves. They want someone to do it for them.

When the company's Chinese stores finally flopped in 2012,
experts attributed the failure to Home Depot's rigid approach and
ignorance of its customer base.

Best known for its
do-it-yourself furniture assembly, IKEA faced a similar snag when
it expanded to China. But in this case, the company chose to
adapt. It kept most
of its standard product line intact, but offered local home
delivery and fee-based assembly to customers. It also added
Chinese food to its cafeteria. The company's latest earnings suggest that
the strategy is working.

While the average small business owner isn't dealing with
problems quite on this scale, Sutton says the
Buddhism-Catholicism principle still applies. There's no magic
formula for success, he adds — each company needs to discover
what works for it. But thinking along these lines can help in
formulating an effective long-term plan.

"In every case, managing the tension between replicating
tried-and-true practices and modifying them (or inventing new
ones) to fit local conditions weighs on decision makers, shapes
key events, and leads to success or failure," the authors write.